But inheritance tax liability may arise
If the donor lives for more than seven years after the gift (the likely
case), no IHT will be payable. If they die in the next seven years, the
recipient is liable for the tax. The tax is calculated at a maximum of 40%
of the value of the estate, with the first £255k being exempt. The tax is
reduced on a sliding scale from 40% to zero if the gift was made in the
seven years before death.
The most tax efficient way to transfer funds to a relative is to gift them
while the donor is still alive, but the gift must be final. If there are
strings attached (e.g. transfer the deeds of a house into a relative's name
while the donor still lives there or loan money on the understanding that,
should the need arise, it will be repaid) the IHT will not be avoided and
other taxes could be incurred.
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